A home is more than just the backdrop to many memories; it is also an investment and wealth builder through equity over time. Home equity is the market value of your home compared to the amount you owe on the home.
Over time and with each mortgage payment you build the equity in your home in two ways. First, the value of your home increases through market appreciation – in other words, naturally over time, your home is worth more than when you purchased it. Second, with each mortgage payment you make, you are paying down a portion of the principal balance on your loan. Both of these together help increase the equity in your home and work together to help build wealth in your home over time.
Why Building Equity is Important
Having equity increases the amount of money you have invested in your house and gives you flexibility in financial planning as well. You can use the equity now or in the future, depending on your financial goals. If you need money now, you can borrow against your equity as a loan. Kevnik Mortgage can offer both Home Equity Loans and Home Equity Lines of Credit (HELOC) solutions.
It is important to speak with an expert to help you determine the best use of your equity now and in the future.
How to Build Home Equity
Looking to build equity faster? Here are some ideas that provide additional options to increase equity in your home in addition to the natural equity builders of appreciation of time and principal paydown with mortgage payments.
Make a big down payment. This is one way to gain equity instantly. The more money you can put down towards the purchase of your home, the less money you would need to borrow.
Pay Your Mortgage Down. The more money you can put towards your mortgage payments, the more equity you will build. If you make extra payments to your mortgage, you will save money on the total interest paid over the life of the loan (for example, one extra payment a year can pay a 30-year loan off in 18 years. It is often advantageous to use any tax return in April for this purpose).
Switch to biweekly mortgage payments. Instead of paying your mortgage once per month, you can schedule to pay half of the monthly payment every 2 weeks. How does this help build equity? Because you will pay an extra mortgage payment every year. How? Well, there are 52 weeks in a year, and you are paying every other week. Since those payments are half-payments, you will be making 13 full mortgage payments in a year instead of 12.
Refinance to a Shorter Loan Term. Once your mortgage is paid off, you will have 100% equity in your home. One way to get across the finish line faster is to refinance to a shorter loan term (usually 15 years). You will also save money on the interest you would have paid. Keep in mind that when you do shorten the loan term, your monthly payments will go up now that you have less time to pay off the loan balance.
Make Home Improvements. Making regular updates to your home can increase its value. Both bathroom and kitchen upgrades or remodels do cost money upfront but will pay for themselves with the equity you build over time.
Kevnik Mortgage is here to provide tools that can give you an estimate of what your home is worth in today’s market and to answer any questions you may have as it pertains to current equity or future equity. We are here to help you plan for the advantages of homeownership and equity.
We are your home loan experts and are up to date with all the market industry information. kevnik@kevnikmortgage.com
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